A1 - Audit Reports Flashcards
1
Q
What are PCAOB standards?
A
Public Accounting Auditing Oversight Board Auditing Standards = provide general guidance for audits of Public Companies, and it is the most authoritative guidance for an issuer.
2
Q
What are ASB standards?
A
Accounting Standards Board = provide general guidance for audits of Non-Public Companies, and it is the most authoritative guidance for a non-issuer.
3
Q
What are items that require the auditor’s attention an understanding?
A
When the PCAOB says that you “may”, “might”, or “could” perform a specific procedure. Auditor must exercise professional judgement in the circumstances.
4
Q
What are the 3 levels of audit guidance and what is their order of hierarchy?
A
- SAS and PCAOB = Most authoritative.
- Interpretive Publications = Not so authoritative.
- Other Auditing Publications = Least authoritative.
5
Q
What is the specific language used within the stantards to classify an auditor’s level of responsibility?
A
- “Must” or “is required” = indicates an unconditional requirement, which must be followed always if relevant.
- “Should” = indicates a presumptively mandatory requirement, which must followed if relevant, except when departure is permitted. Departure must be allowed and justified.
- “May”, “might”, or “could” = indicates explanatory material and does not impose a professional requirement for performance.
6
Q
What is GAAS?
A
Generally Accepted Auditing Standards = Measures the quality of the auditor’s performance, and guide the auditor in the performance of a propertly planned and executed audit.
7
Q
What is professional skepticism?
A
Having a “Questioning Mind”, and a “Critical Assessment” of audit evidence.
8
Q
What are the basic ethical characteristics and professional qualities?
A
- Objectivity.
- Independence.
- Integrity.
- Impartiality.
9
Q
What are the auditors responsibilities?
A
- Expressing an opinion on FS based on the audit.
- Maintaining professional skepticism.
- Excersing professional judgement through planning and performance of audit.
- Complying with relevant ethical requirements.
- Complying with GAAS.
- Obtaining sufficient appropriate audit evidence.
10
Q
What is reasonable assurance?
A
A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement.
11
Q
How do you obtain reasonable assurance?
A
You must:
- Plan the work and properly supervise assistants.
- Identify and assess risks of material misstatement whether due to fraud or error.
- Determine and apply appropriate materiality levels.
- Obtain sufficient appropriate audit evidence.
12
Q
What happens when an auditor is required to comply with auditing standards in addition to GAAS?
A
An additional statement would be added to the Basis for Opinion paragraph stating which sets of standards were applied.
13
Q
What is the term that identifies a requirement for audit evidence?
A
Appropriate.
14
Q
What should an auditor that is exercising Professional Skepticism do?
A
- Most appropriately consider the reliability of information to be used as audit .
- Should critically assess audit evidence rather than adopting an initial attitude of acceptance.
- May accept records and documents as genuine unless the auditor has reason to believe the contrary.
15
Q
What should the auditor evaluate when forming an opinion?
A
- The FS disclose significant accounting policies (SAP).
- SAP applied are consistent with framework.
- Accounting estimates by management are reasonable.
- Info presented is relevant, reliable, comparable, and understandable (RERECU).
- FS has disclosure to explain material items.
- Terminology (wording) is appropriate.
- Structure and content is fairly presented.
- FS represent underlying transactions fairly.
16
Q
When should an auditor modify the auditor’s opinion (report)?
A
When there is an FS issue or an Audit issue.
17
Q
What is an FS issue?
A
When the auditor concludes that FS AS A WHOLE are materially misstated.
Auditors may use an unmodified/unqualified, qualified, or adverse opinion.
18
Q
What is an Audit issue?
A
When the auditor is unable to obtain sufficient appropriate evidence to conclude that FS are free from material misstatement.
Auditors may use an unmodified/unqualified, qualified, or disclaimer of opinion.
19
Q
What are the types of modified opinions?
A
- Qualified Opinion.
- Adverse Opinion.
- Disclaimer of Opinion.
20
Q
What is a Qualified Opinion?
A
A Qualified Opinion states that, except for the matter to which the qualification related, the FS are presented fairly per the financial framework.
Everything is good except for one thing.
21
Q
What is an Adverse Opinion?
A
An Adverse Opinion states that the FS are not presented fairly per the financial framework.
Everything is wrong.
22
Q
What is a Disclaimer of Opinion?
A
A Disclaimer of Opinion states that the auditor has no opinion on FS.
No comment.
23
Q
What does the auditor use as a reference to guide themselves on how to conduct the audit?
A
GAAS.
24
Q
What does the auditor use as a reference to review transactions?
A
GAAP.
25
What is an Unmodified/Unqualified Opinion ?
A Unmodified/ Unqualified Opinion states that the FS are presented fairly per the financial framework in all material respects.
Everything is good.
26
What is the earliest date for an auditor's report?
When there is sufficient appropriate evidence (SAE) to support the opinion.
27
When does the assembly of the audit file occur?
45 or 60 days after the audit report release.
28
What type of opinion should an auditor give when FS contain a departure from US GAAP because the FS would otherwise be misleading?
An unmodified opinion.
29
Where does the Critical Audit Matters (CAM) section go?
Immediately after the Basis of Opinion section.
30
What is a Critical Audit Matter (CAM)?
A matter that was communicated or is required to be communicated to the audit committee and involves an especially challenging judgement made by the auditor.
31
What information, related to a critical matter, needs to be included in an audit's report?
1. Description of the principal factors that led the auditor to determine that this was a CAM.
2. A description of how the CAM was addressed in the audit.
3. Reference to relevant FS accounts or disclosures that relate to the CAM.
32
What does the Auditor's Responsibility paragraph contain?
The Auditor's Responsibility paragraph explicitly represents the auditor's responsibility to express an opinion.
33
What are the parts of the Audit Report?
1. Title
2. Addressee
3. Auditor's Opinion
4. Basis for Opinion
5. Substantial Doubt About Going Concern.
6. Key Audit Matters.
7. Management Responsibilities.
8. Auditor's Responsibilities.
9. Other Info.
10. Other Reporting Responsibilities.
11. Signature, Address and Date.
34
What does an Unmodified Opinion paragraph contain?
1. Identification of applicable financial framework and its origin.
2. Statement that FS are presented fairly.
35
What does an Adverse Opinion paragraph contain?
1. Direct references to a separate section disclosing the basis of opinion.
36
What would result in an Adverse Opinion?
1. Inadequate disclosure of a material transaction.
37
What would result in an emphasis-of-matter paragraph to the unmodified opinion?
1. A justified departure from GAAP.
| 2. A material change in accounting principle.
38
What language, related to a CAM, should NOT be included in the audit report?
Language that could disclaim, qualify, restrict or minimize the auditor's responsibility for the CAM.
39
What are the basic elements of the auditor's report?
1. Evaluate the appropriateness of accounting policies.
2. Obtain an understanding of internal control relevant to the audit in order to design appropriate procedures that are appropriate.
3. Obtain reasonable assurance about whether the FS AS A WHOLE are free from material misstatement.
40
What parts of the Audit Report reference GAAP?
1. Opinion.
| 2. Management's responsibility.
41
What parts of the Audit Report reference GAAS?
1. Basis for Opinion.
| 2. Auditor's responsibility.
42
What does the Basis for Opinion paragraph make reference to?
1. GAAS.
2. Auditor independence.
3. SAE
43
What does the Opinion paragraph contain?
1. Nature of engagement.
2. FS covered.
3. Name of audited entity.
4. Dates covered in FS.
44
What is one of the few items that is IMPLICIT in the auditor's report?
Consistency.
45
When would the auditor modify the auditor's responsibility?
When issuing a disclaimer of opinion.
46
Where would the auditor disclose that the there was an inability to obtain SAE and the reasons for this inability?
In the Basis for Qualified Opinion section.
47
What is scope limitation?
When there is an inability to obtain sufficient appropriate evidence about a component in the financial statements.
48
What is the only option to issue an opinion if the auditor lacks independence?
Disclaim an opinion.
49
What happens if the auditor is associated with the FS, but has not audited them?
The auditor must disclaim an opinion, and isthere only required to read FS for obvious material misstatements.
50
What type of opinion does an auditor issue where there is a scope limitation?
1. Qualified Opinion
OR
2. Disclaimer of Opinion.
51
What are examples of scope limitations?
1. When the auditor is not able to say if management's estimates are reasonable.
2. When management does not recognize their responsibility for the presentation of FS.
52
When are Emphasis-of-Matter (EOM) paragraphs required?
1. To describe a justified change in accounting principle that has material effect in FS.
2. Facts discovered later that result in a change in audit opinion.
3. FS are prepared per framework (GAAP, IFRS, etc).
53
When are Emphasis-of-Matter (EOM) paragraphs suggested?
1. An uncertainty related to the outcome of lawsuits or law changes, if not propertly disclosed.
2. Armaggedon affecting FS.
3. Significant RP transactions.
4. Important subsequent events.
54
What type of opinion should an auditor give when future events are adequately disclosed and which outcome are not susceptible of reasonable estimation?
An unmodified opinion.
55
When is an Emphasis-of-Matter (EOM) paragraph not appropriate?
1. When the auditor is required to modify the opinion on FS.
OR
2. If it's determined to be a key audit matter to be communicated separately.
56
What happen if there is an IMMATERIAL effect in the comparability of FS?
The auditor does not recognize the change in the audit report and gives an unmodified opinion wo mentioning consistency.
57
What happen if there is an MATERIAL effect in the comparability of FS?
The auditor still gives an unmodified opinion, but adds an EOM paragraph with a reference to nature of the change and the FS note that discusses the change in detail.
58
What is consistency?
Deals with comparability of FS YoY.
| Consistency is implied, unless explicitly stated otherwise.
59
When should the auditor restrict the use of the auditor's communications related to the audit of a private company's FS by including an alert?
When the communication is based on measurement of disclosure criteria that the auditor establishes that only some people can see and that can understand why they are allowed to see.
60
When are "Other-Matter" paragraphs required?
1. When use of auditor's report is restricted.
2. Facts discovered later that result in a change in audit opinion (same as EOM).
3. FS of prior period were audited by a prior auditor, and prior auditor's report is not reissued.
4. CY FS are audited and presented comparative form with audited or unaudited PY FS.
5. Restrict the use of auditor's report when special purpose FS are prepared with a contractual or regulatory basis of accounting.
6. When a report in compliance is included in the auditor's report.
61
When are "Other-Matter" paragraphs suggested?
1. To describe reasons why auditor can't withdraw from engagement when there is a scope limitation.
2. Laws and rules require more explaining on auditor's responsibilities.
3. When auditor needs to audit more than one set of FS and they're in different financial frameworks.
62
What are the responsibilities of a previous auditor when deciding to reissue their prior report? NEED TO KNOW!!!!!!
1. Date the report as appropriate (dual dated or unrevised).
2. Read the CY report.
3. Obtain a letter of representation of new auditor.
4. Compare CY to PY.
5. Obtain a letter of representation from client's management at the date of reissuance.
63
What are the 2 requirements that must be met for the auditor make reference to the component auditor in the audit report?
1. The component auditor has performed an audit in accordance with GAAS or PCAOB (division of responsibility).
2. The component auditor's report is not restricted use.
64
Where, in the audit report, should the auditor state the division of responsibility with other auditors?
In the Opinion sector of the auditor's report.
65
When should the auditor express an unmodified opinion in an updated report?
When PY FS are restated to conform with GAAP.
66
What should an auditor indicate in its CY report when comparative FS are presented and PY auditor's report is nor presented?
CY auditor should indicate in an Other-Matter (Explanatory) paragraph:
1. PY FS were audited by a different auditor.
2. Date of PY report.
3. Type of report issued by PY auditor, and if report was modified, the substantive reasons for the qualified opinion.
4. The nature of any EOM, OM, or Explanatory paragraph from PY report.
67
What are the auditor's responsibilities for Subsequent events?
PRIME!
1. Post BS Transactions.
2. Representation Letter.
3. Inquiry (lawsuits, claims, etc).
4. Minutes of meetings.
5. Examine interim FS.
68
What are Type 1 events?
Recognized subsequent events.
69
What are Type 2 events?
Nonrecognized subsequent events.
70
What are examples of Type 1 events?
1. Settlement of Litigation (as of the BS date).
| 2. Loss on an uncollectible receivable.
71
When does an auditor issue a disclaimer of opinion?
When:
1. There is a significant Scope limitation.
2. Auditor is not independent.
3. FS are not audited.
72
What happens when the auditor issues a report that is dual dates for a subsequent event occuring after the initial auditor's report but before issuance of FS?
Auditor's responsibility is limited to the specific event referenced.
73
What happens when the auditor finds out about facts existing at the report date that would have affected the report had the auditor then been aware of such facts?
Auditor needs to determine whether there is ppl relying or likely to rely on the FS who would attach importance to the information.
74
What should an auditor do if management refuses to adjust the FS after a subsequent event has been discovered?
Notify BOD that mgmt is refusing.
75
After an auditor is no longer engaged, and discovers facts that would have changed his opinion on the report, what should the auditor do?
Discuss the matter with mgmt and, if it is determined that FS need revision, discuss how the matter would be addressed.
76
What are the required procedures the auditor should perfom on RSI?
1. Inquire of mgmt about methods of preparing RSI.
2. Determine if RSI is consistent.
3. Obtain written management representations regarding the RSI.
77
What happens when auditor is unable to perfom the required procedures on RSI because mgmt is difficult?
Inform those charge with governance.
78
What are the auditor's responsibilities in regards to Other Info?
1. Obtain written acknowledgment regarding which docs make up the annual report.
2. Read the other info to determine if it is consistent with FS.
79
What happens when an auditor discovers a material inconsistency in Other Info and management is refusing to revise it?
1. Inform those charge with governance.
2. Revise the report to include a separate "Other Info" section to describe the inconsistency.
3. Withhold the use of the report.
4. Withdraw from the engagement.
80
What understanding must the auditor have when engaged in an audit of FS prepared in accordance with a financial reporting framework generally accepted in another country?
1. The purpose for which the FS are prepared.
2. Whether the financial reporting framework is a fair presentation framework.
3. The intended users of the FS
4. Steps taken by management to determine whether the applicable financial reporting framework is acceptable in the circumstances.
81
What should the auditor include in its report when auditing FS prepared in conformity with a basis of accounting that is not GAAP?
Auditor should include an EOM/BOA paragraph that states that the special purpose framework is a basis of accounting other than GAAP.
82
What are special purpose frameworks?
1. Cash basis.
2. Income tax basis.
3. Basis prescribed by a regulatory agency.
4. Contractual basis.
5. Other basis.
83
What should you do if you have to make a report on the application of financial reporting framework requiements to a specific transaction by an entity that is audited by a different CPA?
You should consult with that other CPA and obtain relevant information about the transaction.
If you decide not to consult, you need to document reasons for not consulting.
84
What is a reporting accountant?
An accountant that prepares a written report on the application of financial reporting framework requiements to a specific transaction.
85
What are the procedures of a reporting accountant that prepares a written report on the application of financial reporting framework requiements to a specific transaction?
1. Obtain an understanding of the form and substance of the specific transaction.
2. Review the relevant requirements of the applicable financial reporting framework.
3. Consult with other professionals, experts, authorities, or research.
